B. Expenditures
V. Results
This report, which provides actuarial forecasts and estimates for purposes of sections 4, 66 and 69 of the EI Act, has been prepared based on EI provisions as of 22 July 2014, on the information provided on or before 22 July 2014 by the Ministers of ESD and Finance, and on the methodology and assumptions developed by the Chief Actuary. The key observations and findings are as follows:
• The 2015 MIE is equal to $49,500, which represents a 1.9% increase to the 2014 MIE of $48,600.
• The total earnings base is expected to grow from $1,219 billion in 2012 to
$1,358 billion in 2015.
• The 2015 estimated cost savings to the EI program that are generated by employer sponsored qualified wage-loss plans are $855 million. In 2015, this amount compensates employers who sponsor a qualified wage-loss plan through reduced employer multipliers for out-of-Quebec employers of 1.298, 1.223, 1.224 and 1.208 for categories 1 through 4 respectively, assuming a legislated premium rate of 1.88% (1.275, 1.183, 1.186 and 1.165 for Quebec employers). This translates into a premium reduction of about 0.19%, 0.33%, 0.33% and 0.36% of insurable earnings for
categories 1 through 4 respectively.
• Total expenditures are expected to increase from $18.7 billion in 2013 to
$19.0 billion in 2015.
• The 2015 base and MPA rates are 1.20% of insurable earnings and 0.34%
of insurable earnings respectively. The upcoming year rate is therefore 1.54% of insurable earnings for residents of all provinces except Quebec and 1.20% of insurable earnings for residents of the province ofQuebec.
• The cumulative deficit in the EI Operating Account is expected to be
$1.1 billion as of 31 December 2014. As a result, the 2015 account balance rate is equal to 0.08% of insurable earnings.
• The 2015 forecast break-even rate is 1.62% of insurable earnings for residents of all provinces except Quebec and 1.28% of insurable earnings for residents of the province ofQuebec.
• However, subsection 66(1.1) of the EI Act sets the premium rate for years 2015 and 2016 at 1.88%. In accordance with this subsection, the 2015 legislated premium rate is 1.88% of insurable earnings for residents of all provinces except Quebec and 1.54% of insurable earnings for residents of the province of Quebec.
• The 2015 legislated premium rate is higher than both the forecast break-even rate and the upcoming year rate. As a result, the 2015 premium
2 2 AU G U S T 2 0 1 4 RESULT S | 31
revenue is expected to surpass the 2015 EI expenditures by $4.6 billion and create a cumulative surplus of $3.5 billion as of 31 December 2015.
B. Earnings Base
Based on the methodology and assumptions developed in Section IV, Table 5 shows the variables required in calculating the earnings base. These results are used in the projection of the EI Operating Account Balance as of
31 December 2014 and in the calculation of the components of the 2015 forecast break-even rate. A detailed explanation of the methodology and assumptions used to derive the results is available in Appendix III.
Table 5 - Earnings Base (Millions)
Actual Forecast
2012 2013 2014 2015
Total Insurable Earnings (TIE) for Salaried Employees, Prior to Adjustment for Premium Refunds (Province of Residence)
Total $513,238 $532,850 $551,953 $572,075
Out-of-Quebec Residents $397,605 $413,651 $428,481 $444,101
Quebec Residents $115,633 $119,199 $123,472 $127,973
Adjustment Due to Employee Premium
Refunds as a % of TIE (PR%) 2.59% 2.56% 2.56% 2.56%
Total Self-Employed Earnings (TSEE)
Total $102 $119 $135 $150
Out-of-Quebec Residents $87 $102 $117 $131
Quebec Residents $15 $17 $18 $19
Earnings Base (1.4 x TIE + TIE x (1 - PR%) + TSEE)
Total $1,218,596 $1,265,318 $1,310,692 $1,358,484
Out-of-Quebec Residents $944,054 $982,276 $1,017,502 $1,054,606
Quebec Residents $274,541 $283,042 $293,189 $303,878
C. Reduction in Employer Premiums Due to Qualified Wage-Loss Plans
Based on the methodology developed in Section III and on the 2015 projected insurable earnings of employees covered by a qualified wage-loss plan, the 2015 estimated reduction in employer premiums due to qualified wage-loss plans is
$855 million, compared to $859 million in 2014. Table 6 shows the main
variables that are used in the calculation. A detailed explanation of the data and methodology used to derive the results are available in Appendix IV. Note that pursuant to section 62 of the EI Regulations and section 68 of the EI Act, the employer multiplier is calculated from the unrounded rates of reduction and the rounded rates of reduction are shown for illustration purposes only.
32 | RESULTS 2 2 AU G U S T 2 0 1 4 Table 6 - Reduction in Employer Premiums Due to Qualified Wage-Loss Plans
Wage-Loss Plan
This section examines the expenditures side of the forecast break-even rate.
EI expenditures include Part I (income benefits) and Part II (Employment
Benefits and Support Measures (EBSM)) benefit payments, administration costs and doubtful debts. EI benefits may also include temporary spending initiatives, such as pilot projects or special measures announced by the Government of Canada. A detailed explanation of the methodology and assumptions used to derive the results is available in Appendix III.
Although penalties and interest on overdue accounts receivable are accounted for as revenues, for the purposes of the forecast break-even rate calculation they are included as credits on the expenditures side of the equation.
Table 7 shows the breakdown of the 2013 EI expenditures, as well as a projection for 2014 and 2015.
Table 7 - Expenditures (Millions)
Actual Forecast
Special (Sickness, Compassionate, MPA and PCIC) $4,603 $4,790 $4,964
Repayments ($187) ($176) ($204)
MPA benefits included in Part I special benefits, as well as direct EI administrative costs incurred to provide MPA benefits (variable
administration costs (VAC)), are required to determine the MPA rate. The VAC represent the direct operating costs incurred by the EI program associated with
2 2 AU G U S T 2 0 1 4 RESULT S | 33
the administration of MPA benefits outside Quebec. They are determined each year by ESDC in accordance with the Canada-Quebec Final Agreement which stipulates a minimum VAC amount.
EI MPA benefits are projected from the base year (2013) using the increase in employees, average weekly benefits and week weight and adjusted to reflect the annual impacts of any program changes and pilot projects. The projected MPA expenditures used to determine the MPA rate are shown in Table 8.
Table 8 - MPA Expenditures (Millions)
Actual Forecast
2013 2014 2015
EI MPA Benefits $3,354 $3,472 $3,598
Variable Administration Costs $17 $17 $17
MPA Expenditures $3,371 $3,490 $3,616
E. Forecast Break-Even Rate
The forecast break-even rate is the rate that, based on the relevant assumptions, is expected to generate sufficient premium revenue to ensure that, at the end of the year, the amounts credited and charged to the EI Operating Account after 31 December 2008 are equal. As described in Section III, the 2015 forecast break-even rate is comprised of three separate sub-components: the base rate, the MPA rate and the account balance rate.
Base Rate 1.
The 2015 base rate is the premium rate required to cover the cost of the 2015 expected EI expenditures, net of expenditures related to providing EI MPA benefits. From the equation shown in Section III, the base rate is equal to the ratio of EI expenditures, net of MPA expenditures, plus the employer premium reduction for qualified wage-loss plans to the earnings base of residents of all provinces.
Table 9 shows the variables that are required in the calculation of the base rate, as well as the resulting base rate.
Table 9 - Base Rate Calculation (Millions)
Forecast
2015
Net Expenditures $19,004
MPA Expenditures ($3,616)
Reduction in Employer Premiums Due to Qualified Wage-Loss Plans $855
Total Expenditures for Base Rate $16,244
Earnings Base (all provinces) $1,358,484
Unrounded Base Rate 1.1957%
Base Rate 1.20%
34 | RESULTS 2 2 AU G U S T 2 0 1 4
MPA Rate 2.
The MPA rate is equal to the ratio of MPA expenditures (EI MPA benefits and VAC) to the earnings base of residents of all provinces without a provincial plan, that is, residents of all provinces except Quebec. It is the premium reduction for Quebec residents as it relates to the savings to the EI Program resulting from the Quebec Provincial Insurance Plan.
Table 10 shows the estimates of the variables that are required in the calculation of the MPA rate, as well as the resulting MPA rate.
Table 10 - MPA Rate Calculation (Millions)
Forecast
2015
MPA Expenditures $3,616
MPA Earnings Base (Out-of-Quebec residents) $1,054,606
Unrounded MPA Rate 0.3428%
MPA Rate 0.34%
Account Balance Rate 3.
The 2015 account balance rate is the premium rate that is required to amortize the projected EI Operating Account balance as of 31 December 2014 over the year 2015. The account balance rate for 2015 is equal to the ratio of the projected EI Operating Account deficit as of 31 December 2014 to the earnings base of residents of all provinces.
In order to calculate the account balance rate, a projection of the EI Operating Account balance as of 31 December 2014 is required. ESDC provides the actual balance of the EI Operating Account as of 31 December 2013. The balance of the EI Operating Account as of 31 December 2014 is estimated using the 2014
projected revenues and expenditures.
From the 2014 forecasted amounts shown in Table 5, the expected premium revenue for 2014, which is used to project the status of the EI Operating Account as of 31 December 2014, is $22.9 billion. A breakdown is provided in Table 11.
Table 11 - Projected 2014 Premium Revenue (Millions)
Quebec
Out-of-Quebec Total
Legislated Premium Rate 1.53% 1.88% N/A
Employee Premiums (Salaried, Net of Employee Refunds) $1,841 $7,849 $9,690 Employer Premiums (Salaried, Before Reduction Due to Qualified
Wage-Loss Plans) $2,645 $11,278 $13,922
Reduction in Employer Premiums Due to Qualified Wage-Loss Plans N/A N/A ($859)
Self-Employed Premiums $0 $2 $2
Adjustment for Prior Year Premium Assessments N/A N/A $159
Total Net Premium Revenue N/A N/A $22,915
2 2 AU G U S T 2 0 1 4 RESULT S | 35
Based on the projected 2014 premium revenue shown above and the 2014 projected EI expenditures of $18.8 billion presented in Table 7, the projected deficit of the EI Operating Account as of 31 December 2014 is $1.1 billion, as presented in Table 12.
Table 12 - Projected 2014 EI Operating Account (Millions)
Actual Forecast
2013 2014
Opening Balance ($8,124) ($5,201)
Premium Revenue $21,619 $22,915
Expenditures $18,697 $18,832
Sub-Total: Yearly Surplus (Deficit) $2,922 $4,083
Closing Balance ($5,201) ($1,118)
Table 13 shows the estimates of the variables that are required in the calculation of the account balance rate, as well as the resulting rate.
Table 13 - Account Balance Rate Calculation (Millions)
Forecast
2015 Projected EI Operating Account Balance as of 31 December 2014 ($1,118)
Earnings Base (all provinces) $1,358,484
Unrounded Account Balance Rate 0.0823%
Account Balance Rate 0.08%
Summary of Forecast Break-Even Rate 4.
The forecast break-even rate for residents of all provinces except Quebec includes the base rate, the MPA rate and the account balance rate. The forecast break-even rate for residents of the province of Quebec excludes the MPA rate, as MPA benefits are made available to Quebec residents through the Quebec Parental Insurance Plan.
The 2015 forecast break-even rate is 1.62% for residents of all provinces except Quebec and 1.28% for residents of Quebec. These combined rates are expected to generate just enough premium revenue to ensure that, at the end of 2015, all amounts credited and charged to the EI Operating Account after
31 December 2008 are equal.
However, subsection 66(1.1) of the EI Act sets the premium rate for years 2015 and 2016 at 1.88%. Therefore, the 2015 legislated premium rate for residents of all provinces except Quebec is 1.88% of insurable earnings. The corresponding 2015 legislated premium rate for residents of Quebec is 1.54% of insurable earnings, or 1.88% less the premium reduction of 0.34% of insurable earnings.
36 | RESULTS 2 2 AU G U S T 2 0 1 4
Table 14 shows the breakdown of the forecast break-even rate as well as legislated premium rates that apply in 2015 for residents of Quebec and for residents of all other provinces.
Table 14 - Breakdown of Forecast Break-Even Rate and Legislated Premium Rate
Forecast
2015 Components of the Forecast Break-Even Rate (as a % of Insurable Earnings)
1) Upcoming Year Rate
A) Base Rate 1.20%
B) MPA Rate 0.34%
Sub-Total (Upcoming Year) 1.54%
2) Account Balance Rate 0.08%
Forecast Break-Even Rate (i.e. Prior to the Application of the Temporary Freeze)
Residents of All Provinces Except Quebec 1.62%
Residents of the Province of Quebec 1.28%
Legislated Premium Rate (i.e. after the Application of the Temporary Freeze)
Residents of All Provinces Except Quebec 1.88%
Residents of the Province of Quebec 1.54%
F. Financial Status of the EI Operating Account
The 2015 legislated premium rate is higher than both the forecast break-even rate and the upcoming year rate. As a result, the 2015 premium revenue is expected to surpass the 2015 EI expenditures by $4.6 billion and create a cumulative surplus of $3.5 billion as of 31 December 2015.
2 2 AU G U S T 2 0 1 4 RESULT S | 37
Table 15 shows the EI Operating Account for 2013, as well as the projected evolution of the account for 2014 and 2015. For 2015, the account projection is shown on two bases:
• Using the forecast break-even rate prior to the application of the
temporary premium rate freeze (1.62%/1.28%), the cumulative deficit is eliminated;
• Using the legislated premium rate which reflects the temporary premium rate freeze (1.88%/1.54%), a cumulative surplus of $3.5 billion is
generated.
Table 15 - EI Operating Account Projections (Millions)
Premium Rate (Out-of-Quebec Residents) 1.88% 1.88% 1.62% 1.88%
Premium Rate (Quebec Residents) 1.52% 1.53% 1.28% 1.54%
Gross EI Premium Revenue $23,014 $23,869 $21,200 $24,770
Reduction in Employer Premiums Due to Qualified Wage-Loss
Plans ($911) ($859) ($855) ($855)
Opening Balance ($8,124) ($5,201) ($1,118) ($1,118)
Closing Balance ($5,201) ($1,118) ($4) $3,528
38 | SENSITIVITY OF PROJE CTIONS 2 2 AU G U S T 2 0 1 4
VI. Sensitivity of Projections
While a change in the value of any one of the various assumptions used in the preparation of the actuarial estimates presented in this report would have an impact on the forecast break-even rate, two particular assumptions, the
unemployment rate and the beneficiary-to-unemployed ratio (“B/U ratio”), are analysed more closely. The impact of a variation in the premium rate on premium revenue is also examined.
Unemployment Rate 1.
Assuming all other assumptions remain constant, a variation in the
unemployment rate (UR) of one-tenth of a percentage-point (0.1%) would have an expected net impact of $168 million on the balance of the
EI Operating Account.
Table 16 - Sensitivity of 2015 Results to the Unemployment Rate Assumption (Millions)
Variation in
2 2AU G U S T 2 0 1 4 SENSITIVITY OF PROJECTI ONS | 39
B/U Ratio 2.
As shown in the following table, a 0.5% increase in the B/U ratio in 2015 from the base assumption of 39.3% would, all other assumptions remaining constant, result in a $125 million increase in expenditures and a corresponding decrease in the EI Operating Account, due to an increase in the number of beneficiaries. A 0.5% decrease in the B/U ratio from the base assumption would have the opposite impact on expenditures and the EI Operating Account.
Table 17 - Sensitivity of 2015 Results to the B/U Ratio Assumption (Millions)
Variation in
As demonstrated in the following table, for every cent (0.01%) variance in the premium rate in 2015, all other assumptions remaining constant, there is a
$136 million impact on the premium revenue generated.
Table 18 - Sensitivity of 2015 Results to the Premium Rate (Millions) Variation in
40 | CONCLUSI ON 2 2 AU G U S T 2 0 1 4
VII. Conclusion
This report was prepared by the Chief Actuary in accordance with the relevant legislation and accepted actuarial practices, and provides to the Commission the forecasts and estimates for the purposes of sections 4 (MIE), 66 (EI premium rate) and 69 (employers who sponsor qualified wage-loss plans and premium reductions for Quebec residents and their employers) of the EI Act.
In accordance with the methodology detailed in section 4 of the EI Act and the relevant economic data, the 2015 MIE is $49,500. In addition, pursuant to subsection 69(1) of the EI Act, the 2015 estimated employer premium reduction due to qualified wage-loss plans is $855 million.
Based on the assumptions of the relevant economic and demographic variables provided by the Minister of Finance, on the expenditure estimates provided by the Minister of ESD, and on the methodology and assumptions developed by the Chief Actuary, it is the opinion of the Chief Actuary that the 2015 premium rate which would generate sufficient premium revenue to cover the expected
$19.0 billion costs to the EI program in 2015 and pay down the projected
$1.1 billion cumulative deficit in the EI Operating Account as of
31 December 2014, is 1.62% for residents of all provinces except Quebec and 1.28% for residents of Quebec.
Subsection 66(1.1) of the EI Act sets the premium rate for years 2015 and 2016 at 1.88%. Therefore, for 2015, the legislated premium rate is 1.88% for residents of all provinces except Quebec. The corresponding premium rate that applies to residents of Quebec is 1.54%, or 1.88% less the premium reduction of 0.34%.
Pursuant to subsection 69(2) of the EI Act, this reduction represents the
estimated savings to the EI program following the establishment of the Quebec Parental Insurance Plan, which provides MPA benefits to residents of Quebec.
Given the difference between the 2015 upcoming year rate of 1.54% (the rate which should generate sufficient premium revenue to cover expenditures
expected to be incurred in 2015) and the legislated premium rate of 1.88%, it is expected that revenues will exceed expenditures by $4.6 billion, eliminating the cumulative deficit in the EI Operating Account and creating a cumulative surplus of $3.5 billion as of 31 December 2015.
It is important to note that the figures included in this report are projections, and eventual differences between future experience and these projections will be analyzed and taken into account in subsequent reports.
2 2 AU G U S T 2 0 1 4 ACTUARIAL OPINI ON | 41
VIII. Actuarial Opinion
In our opinion, considering that this report was prepared pursuant to the Canada Employment Insurance Act and Regulations:
• the data on which this report is based are in aggregate sufficient and reliable;
• the methodology used is appropriate and consistent with sound actuarial principles; and
• the actuarial assumptions used are in aggregate reasonable, appropriate and set on a best estimate basis.
This report has been prepared, and opinions given, in accordance with accepted actuarial practice.
Mathieu Désy, F.C.I.A., F.S.A.
Actuary OCA, OSFI
Christine Dunnigan, F.C.I.A., F.S.A.
Actuarial Officer OCA, OSFI
Ottawa, Canada 22 August 2014
Michel Millette, F.C.I.A., F.S.A.
Chief Actuary, Employment Insurance Premium Rate-Setting Office of the Chief Actuary (OCA)
Office of the Superintendent of Financial Institutions Canada (OSFI)
42 | AP P E N D I X I 2 2 AU G U S T 2 0 1 4
Summary of EI Legislation Appendix I.
The Unemployment Insurance program was first implemented in 1940, with the last major reform occurring in 1996. At that time, the name of the program was changed from “Unemployment Insurance” to “Employment Insurance” to reflect the program’s primary objective of promoting employment in the labour force and to better emphasize that individuals’ access to the program is linked to significant work attachment.
The EI program provides assistance to individuals who are laid off or are unable to work due to specific life circumstances, and helps unemployed people across the country find employment. This Appendix provides a brief overview of the EI program.
A. EI Part I Benefits
Part I of the EI program provides temporary financial assistance to workers who have lost their job through no fault of their own while they look for work or upgrade their skills.
EI benefits paid under Part I of the Employment Insurance Act (“EI Act”) include regular benefits, which provide temporary financial assistance for unemployed persons, fishing benefits for self-employed fishers and work-sharing benefits for workers willing to work a temporarily reduced work week to avoid lay-offs.
Part I benefits also include special benefits for those who are sick, pregnant or caring for a newborn or adopted child, or caring for a seriously ill family member, or providing care or support to their critically ill or injured child.
Although access and entitlement to benefits vary depending on each benefit type, the calculation of weekly benefit rates is the same for most benefit types.
For claims on or prior to 6 April 2013, weekly benefits were generally equal to 55% of the insurable earnings of a claimant in the last 26 weeks divided by the greater of the number of weeks worked or a minimum divisor between 14 and 22 determined by the regional unemployment rate.
For claims on or after 7 April 2013, weekly benefits are generally equal to 55%
of the claimant’s variable best weeks over the qualifying period (generally 52 weeks). The number of best weeks taken into account is determined by the regional unemployment rate and varies from 14 to 22 insurable earnings weeks.
The maximum amount payable is determined by the maximum insurable earnings (MIE).
2 2 AU G U S T 2 0 1 4 AP P E N D I X I | 43
Regular Benefits 1.
EI regular benefits provide temporary income-support to eligible insured persons who have lost their jobs through no fault of their own, such as due to shortage of work, or seasonal or mass lay-offs, and are available and able to work but can’t find a job.
To qualify for regular benefits, individuals must have been without work and without pay for at least seven consecutive days. In addition, an insured person must have worked at least the minimum required number of insurable hours, between 420 and 700 hours, as determined by the regional unemployment rate, in the 52-week qualifying period. A minimum of 910 hours may be required for
To qualify for regular benefits, individuals must have been without work and without pay for at least seven consecutive days. In addition, an insured person must have worked at least the minimum required number of insurable hours, between 420 and 700 hours, as determined by the regional unemployment rate, in the 52-week qualifying period. A minimum of 910 hours may be required for